Regional development in Lithuania: A tale of two economies

Regional differences in GDP per capita, productivity, employment and poverty in Lithuania are among the largest in the OECD, and they have increased over the last decade. The country still recovers from the legacy of the Soviet planning system which aimed at balanced geographical distribution of industrial activity and left many unviable firms and jobs particularly in rural areas. Unemployment is high in many regions, while mobility of excess labour towards economically stronger areas remains insufficient. Some regions feature "surplus infrastructure", while others lack investment. This paper looks at potential reasons for persisting disparities and assesses recent policy initiatives to reduce them. Stark gaps in education outcomes between rural and urban areas should be addressed, mainly by reorganising the municipal school network and by fostering firm-based learning, i.e. apprenticeships. The digital infrastructure is weak in rural regions and should be strengthened to allow access to high-quality jobs in all parts of the country, including through teleworking. Housing supply in economically strong areas should be increased, while urban sprawl should be avoided. Finally, municipal governments should be given more fiscal power, while the planned functional regions should help foster inter-municipal coordination.